Student Loans:

Improvements in the Direct Loan Consolidation Process

HEHS-99-19R: Published: Nov 10, 1998. Publicly Released: Nov 10, 1998.

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Carlotta C. Joyner
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Pursuant to a congressional request, GAO provided information on the William D. Ford Federal Direct Loan Program's (FDLP) and the Federal Family Education Loan Program's (FFELP) loan consolidation process, focusing on: (1) whether FFELP lenders believe that Electronic Data Systems' (EDS) consolidation processing has improved since the December 1, 1997, reopening of the FDLP consolidation system to new applications; (2) the extent to which problems in the data transmission between EDS and the FDLP servicing system have been resolved; and (3) how quickly EDS has been processing consolidation applications for borrowers who applied after December 1, 1997, and whether the Department of Education believes EDS could promptly process a substantially greater inflow of applications.

GAO noted that: (1) the four lenders GAO spoke to said that they believe the consolidation process has improved; (2) they generally reported receiving fewer duplicate requests for information from EDS and fewer incorrect payments for their loans than before the shutdown, and the incorrect payments they did receive were for smaller amounts; (3) they also said that their communications with Education and EDS have improved; (4) Education and EDS have also made progress toward resolving problems in transmitting data to the FDLP servicing system; (5) according to EDS officials, more than 75 percent of transactions that had been rejected during their transmission between the EDS system and the FDLP servicing system as of June 1998-transactions had been successfully transmitted to the FDLP servicing system by September 1998; (6) further, GAO's review of servicing system accounts for the two sets of borrowers it examined showed that many corrections have been made, although not all transactions were being promptly transmitted; (7) for some borrowers in the first set, those included in GAO's April study, some transactions had still not been transmitted successfully to the servicing system; (8) the account of one of these borrowers showed a balance that, according to the servicing system, was $19,000 higher than it should have been, 15 months after EDS recorded the transaction that should have corrected this error; (9) most borrowers in the second set had refunds transmitted to their accounts in 2 to 6 weeks; (10) however, several of these borrowers--who applied for a consolidation loan after the December 1, 1997, reopening--had not had all their transactions successfully transmitted, even though some of these transactions took place more than 5 months ago; (11) Education's data show that the time needed to process consolidation applications has improved since the December 1, 1997, startup; (12) the average processing time fell from about 65 days to about 54 days between December 1997 and June 1998, and the percentage of applications that were pending for 60 or more days decreased from about 6 percent to just over 1 percent between June 1998 and September 1998; and (13) Education officials cited improved processes and increased staff hired by EDS in stating that they are confident that EDS could now handle a greater volume of applications.

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